Generally, portfolio loans, or non-conforming loans as they are sometimes called, are made by local or regional banks and credit unions. These lenders, who loan money to borrowers to purchase a home or refinance their existing property, will keep the loan in their portfolio instead of selling it into the secondary market. A primary reason that these lenders keep the loans in their portfolio is to provide a lending option to those who may not fit secondary market eligibility guidelines and to help the local community. It’s part of their mission and purpose.
Who Is Best Suited for a Portfolio Loan?
Local banks and credit unions have a vested interest in helping the community they serve.
Borrowers of portfolio loans may or may not qualify for a conventional mortgage loan. They may have had some negative financial experiences in the past, such as foreclosure, recent bankruptcy, or credit issues. Portfolio loans may be a good option for individuals who have lower credit scores or limited credit history, higher income but lower credit, have a past judgment or lien, or a past short-sale on a previous home. Bankruptcies and foreclosures generally add a waiting period before a borrower is eligible to take out most mortgage loans. Portfolio loans are an alternative that is available for borrowers who may have experienced these problems.
Individuals who have limited credit history may encounter issues when applying for a secondary market eligible mortgage loan. A portfolio loan may be a solution due to flexibility in documenting alternative credit history.
Real estate investors, particularly those who are starting to face challenges with financing new property investments, may find a portfolio loan is a good option for them. Portfolio loans may have the flexibility to look at the property cash flow instead of focusing on the borrower’s income to approve their request.
Borrowers who have unique income circumstances often find traditional mortgage loans a challenging endeavor. Self-employed borrowers, 1099 employees, contracted employees, individuals with high net worth without comparable documented income, or other unique income situations may experience these challenges and benefit from a portfolio loan option.
What Costs are Associated with Portfolio Loans?
Portfolio loans offer many borrowers a solution when a traditional mortgage loan is not an option. There are some tradeoffs when it comes to costs with going this route. Interest rates are often priced according to risk on portfolio loans.
If you have questions about how to secure a portfolio loan, contact the experts at NASB at 855-465-0753.